Pentagon Expected to Announce Today the Winner of $35 Billion KC-X Program

The U.S. Defense Department is expected to announce today (Feb. 24, 2011) the winner of a $35 billion Air Force aerial refueling tanker contract fought over by Boeing and European rival EADS for nearly a decade. The announcement is expected this afternoon, after financial markets close. The Defense Department is seeking to replace 179 tankers in an aging U.S. Air Force fleet of Boeing KC-135s that date back to the 1950s. The two competitors, U.S. based Boeing and the European Aeronautic Defence and Space (EADS) delivered their best and final bids last week.

According to Loren B. Thompson of the Lexington Institute, “Judging from the frequency with which Pentagon acquisition chief Ashton Carter has been talking up the notion of a ‘globalized’ defense market recently, European aerospace giant EADS is the winner.” An indication of a weary Boeing position surfaces earlier this month, when Boeing declined to enter a US$2 billion Indian tender for six aerial tankers for the Indian Air Force. Boeing cited uncertainty with the U.S. Air Force’s order for 179 aerial tankers as a reason for not entering the competition for the Indian order. EADS opted to enter the Indian tender with the MRTT (KC-45) aircraft it is proposing for the U.S. Air Force program.

“If EADS rival Boeing has indeed lost, it probably will not issue substantive comments on the outcome until it has been debriefed by the Air Force.”Thompson comments, “Once it has heard how the decision was made, it can determine whether there are grounds for a formal protest.”

EADS is already acting like it has won, which isn’t surprising since it knows its plane received a higher warfighting effectiveness rating. Boeing could challenge the rating methodology and several other facets of the selection process, but since price is the key discriminator in the outcome, it is more likely to pursue a political strategy focusing on EADS use of prohibited trade subsidies in developing and marketing its planes.

Boeing won the first KC-X tender in 2006, but its selection was cancelled amid a Pentagon procurement scandal. The second round was won by a team formed by EADS and Northrop Grumman. This selection was withdrawn after the Government Accountability Office (GAO) upheld Boeing’s objections that the process was flawed. The current competition is waged between Boeing and EADS, competing without a U.S. major. Each company has grouped a number of supporting industries and states positioned to benefit from the Pentagon decision.